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A Stain That Won’t Wash Away

September 3, 2012 by staff

Crimes by BP Corporation and its Executives Must Be Punished Meaningfully to Deter Further Deaths and Destruction

By Abrahm Lustgarten
First Published by the New York Times, April 19, 2012

Editor’s Note: While its encouraging when a perspective like this reaches an influential outlet like the Times, we’ve seen this situation repeated time after time, without improvement. More than a decade ago, we detailed how Ford and Firestone got away with manslaughter. Five years later, we had to roll out nearly identical arguments when the International Coal Group’s willful disregard for workers’ safety killed 12 miners, yet the corporation was fined just a few seconds worth of income. Our calls for meaningful punishment and accountability have yet to be adopted.

We encourage you to echo the points made hear in letters to the editor to build support for treating corporate manslaughter as a capital crime. See our free primer on effective letters. Letters of 150 words or less should go to letters@nytimes.com within 3 days of publication.

Two years after a series of gambles and ill-advised decisions on a BP drilling project led to the largest accidental oil spill in United States history and the death of 11 workers on the Deepwater Horizon oil rig, no one has been held accountable.

Sure, there have been about $8 billion in payouts and, in early March, the outlines of a civil agreement that will cost BP, the company ultimately responsible, an additional $7.8 billion in restitution to businesses and residents along the Gulf of Mexico. It’s also true that the company has paid at least $14 billion more in cleanup and other costs since the accident began on April 20, 2010, bringing the expense of this fiasco to about $30 billion for BP. These are huge numbers. But this is a huge and profitable corporation.

What is missing is the accountability that comes from real consequences: a criminal prosecution that holds responsible the individuals who gambled with the lives of BP’s contractors and the ecosystem of the Gulf of Mexico. Only such an outcome can rebuild trust in an oil industry that asks for the public’s faith so that it can drill more along the nation’s coastlines. And perhaps only such an outcome can keep BP in line and can keep an accident like the Deepwater Horizon disaster from happening again.

BP has already tested the effectiveness of lesser consequences, and its track record proves that the most severe punishments the courts and the United States government have been willing to mete out amount to a slap on the wrist.

Before the gulf blowout, which spilled 200 million gallons of oil, BP was convicted of two felony environmental crimes and a misdemeanor: after it failed to report that its contractors were dumping toxic waste in Alaska in 1995; after its refinery in Texas City, Texas exploded, killing 15, in 2005; and after it spilled more than 200,000 gallons of crude oil from a corroded pipeline onto the Alaskan tundra in 2006. In all, more than 30 people employed directly or indirectly by BP have died in connection with these and other recent accidents.

In at least two of those cases, the company had been warned of human and environmental dangers, deliberated the consequences and then ignored them, according to my reporting.

None of the upper-tier executives who managed BP — John Browne and Tony Hayward among them — were malicious. Their decisions, however, were driven by money. Neither their own sympathies nor the stark risks in their operations — corroding pipelines, dysfunctional safety valves, disarmed fire alarms and so on — could compete with the financial necessities of profit making.

Before the accident in Texas City, BP had declined to spend $150,000 to fix a part of the system that allowed gasoline to spew into the air and blow up. Documents show that the company had calculated the cost of a human life to be $10 million. Shortly before that disaster, a senior plant manager warned BP’s London headquarters that the plant was unsafe and a disaster was imminent. A report from early 2005 predicted that BP’s refinery would kill someone “within the next 12 to 18 months” unless the company changed its practices.

Such explicit flirtation with deadly risk was undertaken as part of Mr. Browne’s effort while chief executive to expand BP as quickly as possible. Mr. Browne relentlessly cut costs, including on maintenance and safety. Then he hastily assembled a series of acquisitions and mergers between 1998 and 2001 that added tens of thousands of employees, blurred chains of command and wrought chaos on his operations. His methods — and the demands of Wall Street — became overly dependent on quantitative measures of success at the expense of environmental and human risk.

After each disaster, Mr. Browne pledged to refresh his focus on safety, investment in maintenance and commitment to the environment. His successor, Mr. Hayward, followed suit, saying that BP’s culture had to change. But the Deepwater Horizon tragedy — which bears many of the same traits as the company’s past accidents — shows how difficult it has been for the company’s leaders to shift BP’s corporate values and live up to their promises.

The question becomes, did they try hard enough, and did the mechanisms of oversight, regulation and law enforcement work sufficiently to provide a recidivist organization the deterrent that could guarantee its compliance?

After its previous convictions, BP paid unprecedented fines — more than $70 million — and committed to spending at least $800 million more on maintenance to improve safety. The point was to demonstrate that the cost of doing business wrong far outweighed the cost of doing business right. But without personal accountability, the fines become just another cost of doing business, William Miller, a former investigator for the Environmental Protection Agency who was involved in the Texas City case, told me.

The problem then (and perhaps now) is that it is the slow pileup of factors that causes an industrial disaster. Poor decisions are usually made incrementally by a range of people with differing levels of responsibility, and almost always behind a shield of plausible deniability. It makes it almost impossible to pin one clear-cut bad call on a single manager, which is partly why no BP official has ever been held criminally accountable.

Instead, the corporation is held accountable. It isn’t clear that charging the company repeatedly with misdemeanors and felonies has accomplished anything.

At more than $30 billion and climbing, the amount BP has paid out so far for reparations, lawsuits and cleanup dwarfs the roughly $8 billion that Exxon had to pay after its 1989 spill in Prince William Sound in Alaska. And BP will very likely still pay billions more before this is finished.

And yet it is not enough. Two years after analysts questioned whether the extraordinary cost and loss of confidence might drive BP out of business, it has come roaring back. It collected more than $375 billion in 2011, pocketing $26 billion in profits.

What the gulf spill has taught us is that no matter how bad the disaster (and the environmental impact), the potential consequences have never been large enough to dissuade BP from placing profits ahead of prudence. That might change if a real person was forced to take responsibility — or if the government brought down one of the biggest hammers in its arsenal and banned the company from future federal oil leases and permits altogether. Fines just don’t matter.

Abrahm Lustgarten, a reporter for Pro Publica, is the author of “Run to Failure: BP and the Making of the Deepwater Horizon Disaster.”

© 2012 New york Times Co.

Filed Under: Corporate Accountability

Amazon.com Usurps Process of Direct Democracy to Perpetuate Corporate Subsidy

July 31, 2012 by staff

By Orson Aguilar and Michelle Romero
First Published by the San Francisco Chronicle, July 28, 2011

Editor’s Note: Amazon Corporation is the latest corporation to usurp direct democracy to serve its ends. In its quest to continue its tax evasion scheme, Amazon will be fighting against Walmart Corporation, perhaps the most frequent abuser of the process. For those interested in learning more about corporations and the ballot process, this battle will provoke us to update this recently-dormant page, which offers many background resources. For more on why exempting internet corporations from the tax-collection responsibilities storefront businesses must follow, we suggest this Business Week article from our allies at the American Independent Business Alliance.

Amazon.com, the giant Internet retailer, has decided to put an initiative on California’s ballot to try to evade having to pay the same sales taxes that other retailers pay. As the system stands, Amazon’s chance of getting its self-interested proposal on the ballot is essentially 100 percent.

Something is very wrong with this picture.

Amazon, the Internet giant that began as a bookseller and branched out into other retail, has local merchants up against a wall in part because until now it has been able to avoid collecting sales tax on purchases. That gives it an 8 percent or more price advantage over local stores. So the Legislature, faced with an ongoing budget catastrophe that has forced cuts to schools, universities, parks, care for the elderly and other vital government functions, sensibly acted to close this loophole. Now Amazon plans to buy its way onto the ballot to repeal this reasonable action.

This is just the latest example of how our ballot initiative system – designed by reformers a century ago to reduce corporate influence on state government by giving ordinary citizens the ability to make laws – has been turned upside down.

In the past year or so, we have seen oil companies try to strangle our clean energy law, insurance companies seek to evade state rate regulations, a major utility company try to block local governments from establishing public power systems, and a variety of corporate interests push to make it harder to raise taxes or fees on big companies. That said, Californians rightly value their ability to go to the ballot with their own ideas for new laws. The process can have great benefits, but it’s time to figure out how to put citizens, not special interests, back in charge of “citizen democracy.”

Right now, the system is hopelessly skewed toward moneyed interests. Because of the vast number of signatures required and the short time in which they must be gathered, most initiatives qualify largely or entirely through the use of paid signature gatherers. If you have a couple of million bucks to pay petitioners, you can get a proposal onto California’s ballot. It’s as simple as that.

This isn’t what Gov. Hiram Johnson and his fellow reformers intended when they created the initiative system. That’s why the Greenlining Institute and other organizations have begun to return the system to the ideal of citizen democracy.

Our polling and research suggest several potential reforms. Voters consistently want more reliable information on who supports and opposes initiatives. There is also interest in a formal process for reviewing and revising proposed initiatives, through either an independent citizens’ commission or perhaps the state Supreme Court. And we need to find ways to make the system accessible to true grassroots initiatives, perhaps by lowering the signature count required.

We don’t have all the answers yet, but we’re convinced the system can be fixed.

Orson Aguilar is executive director and Michelle Romero is redistricting fellow of the Greenlining Institute.

© 2011 SF Chronicle

Filed Under: Corporate Accountability, Corporate Welfare / Corporate Tax Issues

A Dirty Business

November 21, 2010 by staff

The Martin County Coal Mine slurry spill and the Bush cover-up of an environmental disaster

By Phillip Babich
First published by Salon.com, November 13, 2003

INEZ, Ky. — There aren’t many people in the United States who have as much experience with rock-and-earth dams and coal slurry impoundments as Jack Spadaro, a distinguished mining engineer who’s been working in federal regulatory agencies for almost 30 years. That’s why he was selected to be one of eight members of an accident investigation team to determine the causes of the nation’s largest coal slurry spill at the Martin County Coal Company in Inez, Kt., on Oct. 11, 2000 .

A coal slurry impoundment is a reservoir of thick liquid waste from coal processing that is constructed by damming the mouth of a valley with rock and earth. To residents living near these impoundments, they are disasters waiting to happen. The EPA called the Inez spill the worst environmental catastrophe in the history of the Eastern United States . Far more extensive in damage than the widely known 1989 Exxon Valdez oil spill off the coast of Alaska, the Martin County Coal slurry spill dumped an estimated 306 million gallons of toxic sludge down 100 miles of waterways.

Jack Spadaro has made it his life’s work to figure out why these spills happen and how to stop them. But right now he is awaiting final word from officials at the U.S. Mine Safety and Health Administration (MSHA), a wing of the U.S. Department of Labor that is a lead regulatory agency for the coal industry, as to whether he will retain his job as the superintendent of the National Mine Safety and Health Academy, MSHA’s training facility [editor’s note: he was fired]. His superiors are accusing him of a raft of misbehaviors — including “abusing his authority” and “failing to follow instructions.” But as far as he’s concerned, the reason he’s facing dismissal is very simple: He’s been in hot water since January 2001 — when Bush administration officials took control of the Martin County Coal investigation.

Before the change in political administration, Spadaro and his teammates had been uncovering information that had far-reaching implications for both Massey Energy (the parent company of Martin County Coal and a major contributor to the Republican Party) and the coal industry as a whole. Testimony and documents revealed that executives at Martin County Coal and federal regulators were aware that there was potential for a catastrophic failure at the slurry impoundment but didn’t take proper actions to avoid it. In particular, an MSHA engineer had made a list of specific safety recommendations to Martin County Coal and MSHA district officials following a 100-million gallon spill in May 1994. But MSHA and Martin not only largely ignored the recommendations, MSHA actually allowed Martin to add coal waste to its impoundment.

By the end of 2000, Spadaro and other investigation team members felt they were beginning to collect enough evidence to issue Massey Energy citations for willful and criminal negligence. In addition, it looked as though their own agency, MSHA, was going to be held accountable as well. But that all changed when George W. Bush moved into the White House. Within days of Bush’s inauguration a new team leader was brought in to head the Martin County Coal investigation. The scope of the investigation was dramatically narrowed — offering yet another dramatic example of how the wholesale takeover of the White House by the energy industry is having a real impact on real lives, not just on the whistle-blowers like Jack Spadaro but on the people he’s trying to protect.

On April 3, 2001, Spadaro tendered his resignation from the accident investigation team and filed a complaint with the Department of Labor’s Office of the Inspector General, alleging that Bush administration officials were obstructing the team’s work. Spadaro also spoke out publicly when MSHA released its final accident investigation report in October 2002, which cited Martin County Coal for two minor violations with fines totaling $110,000, and left MSHA district officials completely off the hook.

Spadaro was placed on administrative leave — often a bureaucratic precursor to job termination — on June 4, 2003 . He was called away on business to Washington, D.C., that day and federal officials took the opportunity to raid his Beckley, W.V. office. They searched through his personal belongings, dismantled the frame of a family portrait to look behind the photograph, and changed the locks. Officials in D.C. questioned him about providing free academy housing to an instructor who had multiple sclerosis. Spadaro says he was dumbfounded by the questions since MSHA officials, including some of his questioners, were aware of the arrangement, which was, in any case, within Spadaro’s authority to grant.

Spadaro could be terminated any day. The apparent vendetta against him, and a mass of other evidence including damning off-the-record comments by officials involved in the investigation and a heavily-redacted report, raise serious questions as to whether Bush administration officials, ranging from mining safety officials all the way to Labor Secretary Elaine Chao, orchestrated a coverup to whitewash Martin County Coal of any serious responsibility for the coal slurry disaster.

There are about 700 slurry impoundments in the United States . Nearly 200 of them are built over underground mines, as is the Martin County Coal impoundment. Plans for building one of the biggest slurry impoundments ever constructed are also under way.

These waste facilities, though little known, have one of the greatest potentials for catastrophic environmental disaster in the country.

On Feb. 26, 1972, a slurry dam gave way at the Buffalo Mining Company in Logan County, W.V., releasing a giant wave of thick, murky water, choked with chemicals, coal refuse, rocks and dirt. According to the official accident report, 132 million gallons of slurry suddenly flooded the Buffalo Creek Valley floor, destroying or partially destroying 17 communities. 125 people were killed. 4,000 people were left homeless.

Jack Spadaro was only 23 years old in 1972, but had already accumulated enough coal mining expertise that he was asked to be the staff engineer for the governor’s commission that investigated the Buffalo Creek disaster.

“That was a terrible tragedy that could have been avoided,” he says. “There had been plenty of warnings that something [of this nature] would occur. There were a series of dams at Buffalo Creek and there had been failures on all of them.”

The tragedy profoundly affected Spadaro. He spent the next 30 years studying rock and earth structures and working as a government regulator to try and protect miners and communities from faulty dams and negligent coal companies.

The Martin County Coal slurry impoundment is 70 acres in size and has a capacity of more than 2 billion gallons. Part of the lagoon is situated above underground mines. In the early morning hours of Oct. 11, 2000, the bottom of the slurry impoundment broke into one of the mines. A torrent of sludge and water blasted through about two miles of underground mines until the flood punched out of a mine opening in the side of a mountain and began flooding Coldwater Creek.

Residents described the flood as a black lava flow. Janice Maynard remembers seeing five big turtles, supine in their shells on top of the slurry, which had enough density to raise bridges as it crested the creek banks.

“It smelled like hydraulic fluid,” she said. “Nothing smells worse than hydraulic fluid.”

Eventually, the thick sludge stopped flowing, but the less viscous slurry at the top of the impoundment was still rushing into the mine. This caused a pressure build up, which resulted in a second flood that punched through mines on the Wolf Creek side of the impoundment.

There was no loss of human life, but aquatic life was annihilated, and animals that came in contact with the sludge got stuck and perished, or died because they were unable to get uncontaminated drinking water. Many residents exhibited severe rashes and suffered from respiratory problems. No one in the area dares drink tap water for fear that a number of hazardous substances found in slurry, such as arsenic and mercury, have permanently poisoned the municipal water systems.

It’s a stroke of luck that no miners were killed. A conveyer belt that hauls coal to the preparation plant runs through the area where the breakthrough occurred. A miner had just vacated that section of the mine minutes before the catastrophe. Officials say that if all of the slurry had come down the Coldwater side, hundreds of homes would have been submerged and the loss of life would have easily surpassed the death toll at Buffalo Creek.

Within two days of the disaster, Davitt McAteer, then assistant secretary of labor for mine safety and health (a 1994 Clinton appointee), assembled an accident investigation team. Tony Oppegard, now general counsel for the Kentucky Department of Mines and Minerals, was the team leader.

Jack Spadaro was the No. 2 man. “Jack was highly qualified for the job,” said Oppegard. “I knew he’d be a diligent member of the team. He knew a lot about impoundments, and I knew that he had investigated the Buffalo Creek disaster. McAteer told me that if I wasn’t there, Jack was in charge.”

Spadaro immediately set out to find the root causes of the Martin County Coal accident: “I was concerned that we were having a failure of this magnitude 30 years after Buffalo Creek. There had been a lot of safeguards implemented over time. But all that was related to the dams and the earth structures. Not a whole lot of attention had been given to the reservoir areas. I was interested from a technical standpoint and a personal standpoint because I had been involved with these things for so long, and I knew what kind of tragedy could result if we didn’t do a good job of investigating.”

Oppegard started his investigation by wading through slurry-filled mines at Martin County Coal to try and get a close-up look at the diaster. The details of the May 1994 spill, six years earlier, in which about 100 million gallons of slurry were dumped, didn’t come to light until later in the investigation. But when they did, certain documents read like smoking guns.

Of particular interest is a June 13, 1994 memorandum obtained by Salon through a Freedom of Information Act request. In that memo an MSHA engineer made a series of nine critical recommendations that Martin County Coal and MSHA regulators needed to address before the company could resume using the impoundment. The engineer, Larry Wilson, also observed rising bubbles in the slurry impoundment, indicating that there was still a breech. “[Martin County Coal] should not be allowed to let the [slurry] level rise until a complete evaluation by the Company’s consultant has been completed [sic],” wrote Wilson .

The Wilson memo caught the attention of Mark Skiles, head of MSHA’s engineering division, which is known as Technical Support. Skiles was ordered by McAteer in October 2000 to do a complete review of MSHA’s files on the May 1994 accident.

Skiles’ investigation resulted in a memorandum to his boss that stated: “I would conclude from this investigation that after the 1994 failure the [local MSHA district office] did not follow [Larry Wilson’s] recommendations. Technical Support in light of the 1994 failure did not follow up on the recommendations.”

What’s more, Martin County Coal’s own engineering firm was aware that another breakthrough after the May 1994 accident was “virtually inevitable,” according to testimony given to the accident investigation team. (The Lexington Herald-Leader newspaper obtained transcripts.) In his testimony an engineer for Geo/Environmental Associates, Scott Ballard, said that there was only 15 feet of rock and dirt between the bottom of the slurry impoundment and the location of the 1994 breakthrough into the underground mine. (The MSHA recommended amount is 150 feet.)

Plans to seal the rupture and minimize leakage were “never intended to prevent a breakthrough in any form or fashion,” Ballard told MSHA investigators. “In fact, the question was asked during the MSHA review process: Will this prevent it? And the answer was emphatically ‘no.’ There’s no guarantees. There’s nothing here that will prevent a breakthrough.”

According to Jack Spadaro, Ballard testified that at least five Martin County Coal executives were aware of the risks their impoundment posed to miners and the surrounding communities. Massey Energy declined to comment.

Two months into the Martin County Coal accident investigation, evidence started coming to light that the Massey subsidiary could be charged with criminal negligence, which could have severe financial and legal implications, according to 비트코인 등 다양한 결제수단을 지원하는 토토사이트. MSHA was also in the hot seat: Its own district managers, who were vested with holding Martin County Coal accountable to the law, appeared to have given the company a pass. Despite the warnings inherent in another impoundment rupture, MSHA let Martin County Coal increase the volume and height of its slurry impoundment after the 1994 accident.

But the direction of the investigation abruptly changed when Bush was sworn in as the nation’s 43rd president. In late January 2001 Bush administration officials installed a new team leader to take charge of the Martin County Coal investigation, a switch that was neither required by law nor politically necessary. In fact, MSHA’s lead investigator, Tony Oppegard, had gotten indications that he was going to be put on contract so he could finish the investigation. But, with no explanation, he received word that the Bush administration had not approved his contract.

Instead, Tim Thompson, the district manager from MSHA’s Morgantown, W.V., office, was brought in. According to some members of the accident investigation team, Thompson made it clear that investigators were expected to immediately start wrapping up their work and write the final report. There were as many as 30 interviews that the team had left to conduct, but Thompson whittled that number down to about six. Spadaro says that Thompson explicitly said, “We’re not going to let any fingers point at MSHA.” Thompson did not respond to a request for an interview.

According to investigation team members who spoke with Salon on condition of anonymity, Thompson was in frequent communication with the new assistant secretary of labor for mine safety and health, David Lauriski, who was appointed by Bush in March 2001. These communications took place particularly when Thompson was at odds with the rest of the team over critical issues, the sources said.

Bush’s top leadership at MSHA is stacked with former mining executives. Lauriski, MSHA’s chief, was an executive with Energy West Mining. Deputy assistant secretary John Caylor worked for Cyprus Minerals, Amax Mining and Magma Copper. MSHA’s other deputy assistant secretary, John Correll, worked for Amax Mining and Peabody Coal.

In Kentucky there’s a high degree of suspicion that MSHA officials were getting their orders from higher-ups in the administration, and from Sen. Mitch McConnell, R-Ky., who, like the Bush-Cheney ticket, is heavily backed by campaign contributions from the coal industry, including Massey Energy. In a full-page editorial in the Lexington Herald-Leader, the newspaper’s opinion writer put it this way: “When President Bush took office in January 2001, Elaine Chao, Senator Mitch McConnell’s wife, became Secretary of Labor with responsibility for MSHA. David Lauriski, a Utah coal operator, became MSHA’s director. Lauriski hired a McConnell staffer, Andrew Rajec, who attended the MSHA investigator’s meetings and now works in Chao’s office.”

Coal has been king in these parts for more than a century. As an example of how coal companies wield political influence these days, consider this excerpt from a meeting in 2002 between coal magnate Bob Murray and MSHA inspectors. West Virginia Public Radio managed to obtain notes from the meeting. Said Murray : “Senator Mitch McConnell calls me one of the five finest men in America, and last time I checked he was sleeping with your boss.”

On Jan. 10, 2003, the inspector general’s office in the Labor Department completed its findings on Spadaro’s allegations that the Bush administration was obstructing the accident investigation into the Martin County Coal slurry spill. Salon obtained a copy of the 25-page report by filing a Freedom of Information Act request. It’s heavily redacted. Whole pages are blanked out, leaving the public to wonder how the Inspector General was able to exonerate MSHA. The report’s final sentence: “No evidence was uncovered to substantiate any allegations relating to MSHA’s Martin County Coal accident investigation.”

The Courier Journal newspaper in Louisville, Ky., wrote on its editorial page: “The message a Labor Department Inspector General’s report has sent, not only to those in charge of the U.S. Mine Safety and Health Administration but to all the friends of business whom George W. Bush has planted in the federal bureaucracy, is clear: Complaints about business-friendly regulation will be given short shrift.”

Ellen Smith, an award-winning investigative journalist who publishes Mine Safety and Health News, had this to say about the IG report: “I have been reporting on mining issues since 1987, and I can tell you that in all of these years of reporting on mining issues we have never seen a government report with redactions like this one. They might redact people’s names. They might redact dates. But in this case, it was literally half the report, and there are pages and pages of redactions. How they reached their conclusions, we will never know, because they have taken all of that out of the report.”

The inspector general’s office justified the redactions by citing the need to protect personnel privacy and internal matters. But according to MSHA officials familiar with the IG investigation, what’s more likely is that the inspector general had an interest in not revealing details of sensitive discussions and documents that could have implicated Labor Secretary Chao and top MSHA officials in a coverup.

As an example, the report notes that the accident investigation team leader, Tim Thompson, called four of the investigators into his office to sign the final report. When they were handed just the signature page, not the completed report, they objected and refused to sign. The report says, “Thompson made a conference call to Assistant Secretary [for Mine Safety and Health] Dave Lauriski.” Several lines are redacted, then the report continues: “Thompson provided a copy [of the report] … a few typographical errors were identified and corrected. The four members willingly signed the final report without reservation.”

What did Lauriski say? And what did he or the inspector general make of the fact that Thompson wanted the investigators to sign a report they hadn’t read? The public may never know.

The IG report also addresses the Mark Skiles memo of October 2000 noting that the local office of the MSHA had not followed the recommendations of the report written by the engineer who had analyzed the 1994 spill. But the only information that’s imparted is that the memo exists. The entire next page has been redacted.

What follows the redactions is a brief description of a so-called District Response Memo to the Skiles memo, a sort of tit-for-tat dueling memo in the bureaucratic blame game that purports that all the recommendations made by MSHA engineer Larry Wilson after the May 1994 slurry spill had been followed up on. Again, no pertinent information is imparted, and the next two and a half pages are completely blanked out. This is significant because these documents go to the core of culpability and charges of criminal negligence.

According to some members of the accident investigation team, who provided testimony to the inspector general, there are two revealing details that the IG most likely redacted: 1) MSHA investigators had alleged that top management at MSHA put pressure on Mark Skiles to alter his memo in order to water down his conclusion that “after the 1994 failure the [MSHA district office] did not follow [Larry Wilson’s] recommendations;” and, 2) MSHA investigators had alleged that the district response memo was fabricated, back-dated and surreptitiously made available to the investigation team after the Skiles memo was leaked to reporters and appeared in regional newspapers. If proven, either one of these allegations would have been grounds for obstruction of justice.

One investigator said he had doubts about the district response memo when it first appeared, late into the investigation. For one thing, it was dated Oct. 31, 2000 . The Skiles memo was undated, but it was later said to have been written on the same day, Oct. 31. The Skiles memo, which is a detailed two-and-one-half-page report with more than 20 pages of attachments, had to make its way through at least two offices before the local district office could draft its response, which is four pages in length and disputes, point-by-point, all of the allegations that MSHA and Martin County Coal did not follow through on nine safety recommendations.

What’s more, according to members of the investigation team, the district response memo contains “flat-out lies.” For example, the initial engineering recommendations in 1994 called upon Martin County Coal to install weirs at its impoundment to monitor for outflow. Skiles noted in his memo that this recommendation had not been followed up on. The district response memo rebuts that “weirs were installed at all outflow locations.” But at least two MSHA investigators say they saw no evidence of the weirs when they inspected the site after the October 2000 disaster.

Investigators on the accident investigation team wanted to cite Martin County Coal for eight violations, including at least one for willful negligence. Instead, the number was whittled down to two with a total fine of $110,000. Massey Energy appealed those citations; one was removed. The only federal violation Massey is cited with is for failing to properly notify MSHA about changes in water flow from the impoundment; fine: $55,000.

A fine by the state of Kentucky was much stiffer. Martin County Coal agreed in the summer of 2002 to pay $3.25 million in penalties and damages, the largest mining-related fine in the state’s history.

Massey Energy says it has spent over $40 million in cleanup costs. But Massey’s CEO, Don Blankenship, also announced during a conference call with investment bankers on July 31, 2003, that the company had just won a $21 million insurance settlement for property damage and business interruptions that resulted from the October 2000 slurry spill.

The January 2003 finding by the inspector general that there was no evidence to support Spadaro’s allegations that Bush administration officials were obstructing the investigation may have cleared the way for putting Spadaro on administrative leave. But it was never a secret at MSHA that Spadaro was a marked man. He’d acquired a well-deserved reputation as a whistle-blower, a “calls-them-as-he-sees-them” type of government employee, often with the public’s interest at heart.

Spadaro has worked with Republican and Democratic administrations over the years. But he never seemed to get on track with the administration of George W. Bush. In addition to the Martin County Coal matter, Spadaro clashed with top officials at MSHA over allegations that lucrative contracts were being handed out to friends and former associates. Earlier this year, Spadaro blew the whistle on Lauriski and MSHA’s two deputies, Correll and Caylor, for their connections to not-for-bid contracts that went to longtime friends and associates Gerry Silver and Ben Sheppard. Sheppard obtained a series of contracts worth about $190,000. Silver received more than $100,000 from MSHA.

In October 2003, MSHA charged that the superintendent had abused his authority at the academy, made unauthorized cash advances on a government credit card, and failed to follow supervisory instructions and appropriate accident procedures. The most serious of MSHA’s charges against Jack Spadaro revolve around the superintendent’s granting of free room and board to two instructors who were disabled. MSHA also says that Spadaro violated government rules by providing free room and board at the academy to participants in a mine rescue competition.

Spadaro’s attorney, Jason Huber, says the charges are specious. “There were at least two individuals who required disability accommodations, and Jack provided for them,” says Huber. “Everything that Jack did as superintendent was according to either directives that were handed down to him from superiors in accord with policies that existed prior to Jack’s arrival, or that were required under the law.”

MSHA spokesperson Rodney Brown said that the agency cannot comment on an ongoing personnel matter.

The unauthorized cash advances were a series of transactions in the amount of $200 or less, totalling about $1,800. According to Huber, Spadaro promptly paid his credit card bill each month and that the advances were for MSHA-related activities, including a dinner with Chinese businessmen at a restaurant that didn’t accept credit cards, requiring Spadaro to get a cash advance at an ATM. MSHA also cites labor grievances from several years ago: a delayed promotion, reprimanding an employee, and two complaints about relocating employees to different offices in the building.

Spadaro says that given the nature of the charges against him, the June raid on his Beckley office is particularly alarming. “There’s no justification for the raid that was done on my office,” he says. “Even if I was guilty of all the crimes they accuse me of, there was no justification for attacking me and my office in the way that was done. We can’t find any precedent for what they did, and we think it was extreme. That’s going to be part of our complaint to the Merit Systems Protection Board [a federal agency that protects civil servants’ rights] and later in federal court.”

If you don’t live in a state that produces coal it may be easy not to notice that fully 50 percent of all electricity generated in the United States comes from coal-fired power plants. But if you’re in coal country the presence of the black rock is unmistakable. Take northeastern Kentucky as an example. Drive down Route 23 — the Country Music Highway with signs that pay tribute to the likes of Loretta Lynn, Dwight Yoakam and other hometown stars — and not a minute goes by without seeing a big rig hauling what miners call a “coal bucket,” a long, gray-stained trailer covered with a tarp to hold in its payload. Flecks of coal click and crack against car windshields as fleets of these trucks make their way to railroad lines, shipping docks and power plants. Thick white exhaust, like a cumulonimbus cloud, billows into the sky at the American Electrical Power plant; a mountain of coal, as big as a professional football stadium, charging the network of electric cables and transformers.

If you live in the coal fields, your life is intimately linked to the coal industry. For decades there was almost a symbiotic relationship between coal field residents and coal companies. Jobs glued them together. Nowadays the coal industry is less dependent on vast numbers of workers. It’s highly mechanized. Instead, the relationship, as one coal field resident put it, is more like that of a husband and his battered wife who keeps coming back for more. Large-scale mining operations have literally flattened whole mountains, filled entire valleys with rubble, and rattled homes with high-powered explosives. In some areas, piles of rubble as high as a modest skyscraper entomb whole valleys from mouth to crest. Many valleys, or what are called hollows in the Appalachians, have been filled with coal slurry.

Machines aren’t as selective as human hands with picks, so when coal is stripped out of the ground a lot of rock and dirt comes with it. That extra material needs to be separated from the coal. Mine operators have what’s called a preparation plant where the raw coal goes through a series of chemical processes. When it’s through, the coal is as fine as baby powder — no more lumps. The excess liquid, dirt, rock and chemicals — the slurry — is then pumped into an impoundment.

In the aftermath of the Martin County Coal accident investigation, the big question lingering in Kentucky is this: If there was obstruction of justice and a subsequent coverup, why would Bush administration officials get behind it? The new team in Washington could have let the previous administration take the blame. Both Martin County Coal slurry accidents in 1994 and 2000 occurred on Davitt McAteer’s watch. The newly anointed Bush administration could have easily made the case that Clinton and his team fell asleep at the stick, scoring a few easy points with environmentalists.

But those familiar with the coal industry and federal politics say there’s a much larger picture. One MSHA investigator told Salon, “The investigation didn’t have to do with just Martin County Coal. The bigger question is ‘Should slurry impoundments be allowed over old mines?’ That would have been addressed in our report.” With an estimated 200 such impoundments, the coal industry had a lot riding on MSHA’s report.

Hundreds of coal field communities near slurry impoundments had a lot riding on the report as well.

The fear of catastrophic slurry spills animates the dark recesses of mountain life for many a coal field resident. On one chilly fall evening, Abraham Lincoln Chapman — his friends call him Link — and his 13-year-old daughter Paige stand outside their home on the edge of Coldwater Creek, one of the waterways most severely affected by the October 2000 slurry spill. They hear something splash in the water. It’s a welcomed sound. Paige is pretty sure it’s a muskrat, a creature they haven’t seen much since the accident three years ago. Link says the water used to be crystal clear. Now it’s murky brown, and if you poke a stick into the bottom, black clouds of fine slurry rise to the surface.

“It used to be full of fish, full of ducks, turtles, muskrats,” Link laments. “We basically have nothing now. I’ve seen some minnows in it lately. I don’t know if they’ve been released in it, or if they’re minnows from up in the hollow that have come down from where it wasn’t directly affected.”

“We used to catch sand dabs, bass, creek chubs, anything,” says Paige. “It was really full. When the sludge came, it washed away the bank we used to stand on. Everything is gone.” She really misses walking up the creek and catching bullfrogs; their legs are a local delicacy. Now, the bullfrogs are all gone, and Paige says she wouldn’t get in the creek even if she had to.

Her father worked in the coal industry most of his life. His jobs included being a safety director and a purchasing agent. From those vantage points he’s seen the types of chemicals used to process coal. There are conflicting reports on how toxic the slurry is. A study from Eastern Kentucky University found that there are reasons for residents to be concerned. But a government study says there’s no need for alarm. Link doesn’t buy it. He says dryly, “According to what we’ve been told [by the government] as of lately, the slurry’s probably good for you, if you’d eat you a handful of it every day. You ain’t going to grow horns or nothing.”

His children aren’t assured that there won’t be another catastrophe. Link spent his life savings to add a top floor to his house so he could get their bedrooms off the ground level because they were so scared the slurry would come down through the hollow again. “That’s the kind of mental thing it’s done to the residents that live here,” said Link. “I know what’s in the old mines up there and when my little girl would get ready to go to bed at night and she’d say, ‘Dad, the slurry won’t come out tonight will it?’ And, I had to look her in the eye and say, ‘No, it won’t come out. You sleep.’ It was really, really hard to do that, knowing what was still up there.”

People familiar with the mines say there could be anywhere between 50 and 100 miles of abandoned mines near the tops of the mountains filled with water and slurry.

The question of safety seems very real when you stand below a slurry dam. A typical rock and earth structure, about 250 feet tall, stretches to the top of a valley mouth to hold back slurry in the Sun Dial impoundment at Independence Coal, another Massey subsidiary based near Whitesville, W.V. A truck driving across the top of the dam looks the size of a toy Hot Wheels vehicle. Below the slurry dam, which is grown over with grass, is the preparation plant, a series of buildings and conveyer belts painted baby blue. Vertical white lines accent the bigger buildings at regular intervals, like yard lines. The plant is situated next to Marfork Creek and draws water from it to process the coal. There’s a coal silo, and piles of coal around the property.

Directly across the creek from Independence Coal is the Marsh Fork Elementary School where 200 students are enrolled. There’s a green-and-yellow play structure with slides, a small bridge and a cupola amidst a grassy play yard. There’s a sports field behind the school with a scoreboard adorned with a Pepsi logo. Night lights are available for evening games. Freda Williams, an organizer with the advocacy group Coal River Mountain Watch, shudders at the thought of a slurry accident here. “I would really hesitate to say what would happen to all those school children,” she says.

It’s hard for her to come out and say that if anything like what happened at Buffalo Creek in 1972 or Martin County Coal in 2000 occurred here, the school would be buried within seconds. It’s late in the afternoon, and no one’s at the school now. But I ask Williams what school officials think about being so close to an impoundment.

“The coal companies can come into the school and distribute their T-shirts and literature, but those of us who are trying to educate the people on the conditions that surround the school and the area, we’re not welcome,” she replies. It’s then that I notice a chain link fence topped with barbed wire that goes around the perimeter of the school grounds, an out-of-place security precaution for a small mountain town where most people leave their homes and cars unlocked.

The Independence Coal impoundment is just one concern for communities in and around Whitesville. What looms most ominously for them are plans to make the largest impoundment in the country at Brushy Fork. It now holds 5 billion gallons of slurry, and, according to Coal River Mountain Watch, it’s scheduled to hold up to 9 billion gallons. Its dam is 950 feet tall. The Brushy Fork impoundment sits on top of underground mines, and it’s engineered by the same firm that designed the 2 billion-gallon Martin County Coal slurry impoundment.

Williams is the daughter of a coal miner, a union man who was run out of so many coal companies that by the time Freda was 16 she’d attended 16 different schools. At her home in Whitesville, she proudly displays a picture of her father with a group of determined, hardworking men in suits. It was 1921, and they were the victorious defendants in the historic trial of the Blair Mountain Mine War, a labor struggle that pitted thousands of miners against federal troops. Freda sadly notes in the picture that four black men are segregated to the background, also in suits, allowed to partially share the historic moment with their white counterparts. Coal has always been a part of her life.

The mountainside near her home is one side of the hollow that makes up the natural basin of the Brushy Fork impoundment. She noticed the other day that mud was trickling down the slope. It could mean that slurry is pushing on an underground mine. Earlier in the day, as we drove down a two-lane road, she noticed gray water coming down a hillside, a telltale sign that slurry is leaking. She reported both sightings to MSHA.

Her perspective on the coal industry is very clear: “We’re not against coal mining. We just want the coal mining to be done legally and responsibly.”

Meanwhile, Jack Spadaro’s fate sits in the hands of MSHA’s deputy assistant secretary Correll, who’s weighing the superintendent’s appeal of his termination notice. Spadaro doesn’t expect any sympathy from Correll, the target of one of his whistle-blowing activities.

Spadaro is just a few years from retirement and he stands to lose his pension. “I’ve been in federal government for 27 years, and this is the most lawless administration I have ever seen,” he said. “They care nothing for the rights of their employees. They certainly care nothing about enforcing the laws they are charged with enforcing, and they run roughshod over anyone who might try to get them to obey the laws.”

Phillip Babich is an investigative journalist and radio producer based in the San Francisco Area. He’s currently the Managing Producer at the National Radio Project.

© 2003 Salon.com

Related feature: The Root of Sago Mine Disaster: Corporate Crime Pays

Filed Under: Corporate Accountability, Food, Health & Environment

Smithfield Foods Sues Union for…Organizing

February 12, 2008 by staff

Hog corporation claims boycotts are racketeering

By Adam Liptak 
First Published by the New York Times, Feb 5, 2008 

Editor’s note: It’s noteworthy that the mainstream media, which normally pounces on stories of citizens filing “frivolous lawsuits,” has ignored this story of a corporation filing a genuinely frivolous one. This story from the NY Times is the only one on Smithfield from a major media source to register in Google News as of Feb. 5 (the writer is a columnist, not a straight news reporter).

Smithfield Foods, which raises, kills and processes more pigs than any company on earth, does not like some of the things a union has been saying about conditions at its giant slaughterhouse in Tar Heel, N.C., where 4,650 people work and 32,000 hogs die every day.

So Smithfield has filed a racketeering lawsuit against the union, on the theory that speaking out about labor, environmental and safety issues in order to pressure the company to unionize amounts to extortion like that used by organized crime.

“It’s economic warfare,” explained G. Robert Blakey, one of Smithfield’s lawyers. “It’s actually the same thing as what John Gotti used to do. What the union is saying in effect to Smithfield is, ‘You’ve got to partner up with us to run your company.’ ”

One hesitates to argue with Mr. Blakey, who helped write the Racketeer Influenced and Corrupt Organizations Act, or RICO, the 1970 law Smithfield is suing under, as a staff lawyer in the Senate. But what Mr. Blakey calls extortion sounds quite a bit like free speech.

Gene Bruskin, the director of the union’s organizing drive and a defendant in the suit, said his work “bears no relationship to the Mafia whatsoever.”

“If we kidnapped the C.E.O. and we said, ‘We know where your children go to school,’ that’s a Mafia-like act,” Mr. Bruskin said. “If we told the truth about how the company abuses workers to its customers, that’s traditional free speech.”

Smithfield says the union, the United Food and Commercial Workers International, and its officials violated RICO by issuing press releases, contacting civil rights and environmental groups, organizing protests and calling for boycotts.

But the most striking assertion in the suit, one Smithfield devotes five pages to, is that the union was engaged in racketeering when it urged local governments in New York, Boston and other cities to pass resolutions condemning the company. After meeting with the union in 2006, a dozen members of the New York City Council sponsored a resolution calling for the city to stop buying meat from Smithfield’s Tar Heel factory “until the company ends all forms of abuse, intimidation and violence against its workers,” citing a ruling by a federal appeals court in Washington that Smithfield had engaged in “intense and widespread coercion” in battling unionization at its Tar Heel plant.

Councilwoman Melissa Mark-Viverito was a sponsor of the resolution, and she said she had been happy to meet with representatives of labor and business groups to hear their concerns. The practice Smithfield calls racketeering is, Ms. Mark-Viverito said, what others call lobbying. The First Amendment has a name for it, too: the right to petition the government.

Ms. Mark-Viverito said Smithfield’s lawsuit made no sense to her as a matter of logic, to say nothing of principle. But it did resonate as an exercise of corporate power. “It’s a wacky strategy,” she said, “that is aimed at coercing the union into backing off.”

Perhaps the union should file its own RICO suit based on the company’s RICO suit.

Smithfield’s lawsuit contains other nuggets. It complains, for instance, that the union interfered with its relationship with Paula Deen, “a celebrity chef” who has a contract to promote Smithfield products on her show on the Food Network. The union has demonstrated at Ms. Deen’s public appearances.

In a recent court filing, (pdf) Smithfield added another complaint: the union “deprived Smithfield of an incomparable marketing opportunity” by persuading Oprah Winfrey not to allow Ms. Deen to promote Smithfield hams on Ms. Winfrey’s show.

Smithfield’s 94-page lawsuit sputters with an outrage not always grounded in a sure command of the English language. A union representative, for instance, was said to have made “salacious statements” at a water permit hearing by arguing that granting the permit would damage the environment.

The suit seeks more than $17 million, an order barring the union from publishing “reports or press releases designed to mislead the public,” another barring demonstrations “at Paula Deen events,” and a third barring the union “from participating in the drafting, encouraging, sponsorship and/or passage of public condemnations of plaintiffs by cities, townships or other organizations.”

The courts seem receptive to this new kind of racketeering suit. Last week, Judge Robert E. Payne of Federal District Court in Richmond, Va., rejected a motion to dismiss (pdf) the case, which is now scheduled for trial in October.

Mr. Blakey said he knew of six racketeering suits against unions for so-called corporate campaigns meant to pressure companies into unionizing by drawing attention to their asserted shortcomings. Five of the suits survived motions to dismiss, he said, at which point the unions generally entered into settlements.

“When they settle,” Mr. Blakey said, “it normally breaks the campaign.”

A century ago, Upton Sinclair educated the nation about the filth, degradation and misery that pervaded Chicago’s stockyards by writing down what happened in them in “The Jungle.”

Sinclair figures in the Smithfield suit, too.

“On or about April 20, 2007,” the suit says, a union organizer named Jason Lefkowitz had the temerity to quote Sinclair in a critique of Ms. Deen in an online newsletter. That’s right: Smithfield maintains that it is a form of racketeering to quote an American master.

Mr. Blakey said it was perfectly appropriate to cite activities protected by the First Amendment as evidence of racketeering, and he seemed to have little sympathy for the argument that some things should be hashed out through debate rather than litigation.

On the other hand, listen to Upton Sinclair, as quoted in the RICO suit. “It is difficult to get a man to understand something,” Sinclair wrote, “when his salary depends upon his not understanding it.”

© 2008 New York Times

Of related interest: Beware of “Junk Lawsuits” Hype 

Filed Under: Corporate Accountability

Transnational Corporations Dodging Taxes Through “Transfer Pricing”

November 20, 2006 by staff

Some fleece taxpayers to the tune of billions annually

By Dr. Peter Rost – Published November 20, 2006

Drug companies and other multinational companies based in the U.S. systematically avoid paying tax in the U.S. on their profits. The companies elect to realize profits in low-tax countries and because of this the rest of us have to pay billions of unnecessary taxes to make up for the shortfall.

The biggest tax scam on earth has a very innocent sounding name. It is called “transfer prices.” That almost sounds boring. It is, however, anything but boring. Abuse of transfer prices is a key tool multinational corporations use to fool the U.S. and other jurisdictions to think that they have virtually no profit; hence, they shouldn’t pay any taxes.

Corporations involved in this scam are “model corporate citizens,” or so they would like us to believe. The truth is that they rob us all blind. The money we lose can be estimated in the tens of billions, or possibly hundreds of billions of dollars every year. We all end up paying higher taxes because rich corporations make sure they don’t.

But don’t take my word for this.

A few weeks ago U.K.-based GlaxoSmithKline (GSK), one of the largest pharmaceutical companies in the world, together with the Internal Revenue Service (IRS) announced that GSK will pay $3.4 billion to the IRS to settle a transfer pricing dispute dating back 17 years. The IRS alleges that GSK improperly shifted profits from their U.S. to the U.K. entity.

And U.K. pharmaceutical companies are not alone with these kinds of problems. Merck, one of the largest U.S. drug companies, also this month disclosed that they face four separate tax disputes in the U.S. and Canada with potential liabilities of $5.6 billion. Out of that amount, Merck disclosed that the Canada Revenue Agency issued the company a notice for $1.8 billion in back taxes and interest “related to certain inter-company pricing matters.” And according to the IRS, one of the schemes Merck used to cheat American tax payers was by setting up a subsidiary in tax-friendly Bermuda. Merck then quietly transferred patents for several blockbuster drugs to the new subsidiary and then paid the subsidiary for use of the patents. The arrangement in effect allowed some of the profits to disappear into Merck’s own “Bermuda triangle.”

So what’s going on here, how have multinational drug companies been able to gouge us for years selling expensive drugs and then avoid paying tax on their astronomical profits?

The answer is simple. For companies in certain businesses, such as pharmaceuticals, it is very easy to simply “invent” the price a company charges their U.S. business for buying the company’s product which they manufacture in another country. And if they charge enough, poof; all the profit vanishes from the US, or Canada, or any other regular jurisdiction and end up in a corporate tax-haven. And that means American and Canadian tax payers don’t get their fair share.

Many multinational corporations essentially have two sets of bookkeeping. One set, with artificially inflated transfer prices is what they use to prepare local tax returns, and show auditors in high-tax jurisdictions, and another set of books, in which management can see the true profit and lost statement, based on real cost of goods, are used for the executives to determine the actual performance of their various operations.

Of course, not every multinational industry can do this as easily as the drug industry. It would be difficult to motivate $6,000 toilet seats. But the drug industry, where real cost of goods to manufacture drugs is usually around 5% of selling price, has a lot of room to artificially increase that cost of goods to 50% or 75% of selling price. This money is then accumulated in corporate tax-havens where the drugs are manufactured, such as Puerto Rico and Ireland. Puerto Rico has for many years attracted lots of pharmaceutical plants and Ireland is the new destination for such facilities, not because of the skilled labor or the beautiful scenery or the great beer—but because of the low taxes. Ireland has, in fact, one of the world’s lowest corporate tax rates with a maximum rate of 12.5 percent.

In Puerto Rico, over a quarter of the country’s gross domestic product already comes from pharmaceutical manufacturing. That shouldn’t be surprising. According to the U.S. Federal Tax Reform Act of 1976, manufacturers are permitted to repatriate profits from Puerto Rico to the U.S. free of U.S. federal taxes. And by the way, the Puerto Rico withholding tax is only 10%.

Of course, no company should have to pay more tax than they are legally obligated to, and they are entitled to locate to any low-tax jurisdiction. The problem starts when they use fraudulent transfer pricing and other tricks to artificially shift their income from the U.S. to a tax-haven. According to current OECD guidelines transfer prices should be based upon the arm’s length principle – that means the transfer price should be the same as if the two companies involved were indeed two independents, not part of the same corporate structure. Reality is that standard operating procedure for multinationals is to consistently violate this rule. And why shouldn’t they? After all, it takes 17 years for them to pay up, per the GSK example above, even when they get caught.

Another industry which successfully exploits overseas tax strategies to cheat us all is the hi-tech industry. In fact, Microsoft Corp. recently shaved at least $500 million from its annual tax bill using a similar strategy to the one the drug industry has used for so many years. Microsoft has set up a subsidiary in Ireland, called Round Island One Ltd. This company pays more than $300 million in taxes to this small island country with only 4 million inhabitants, and most of this comes from licensing fees for copyrighted software, originally developed in the U.S. Interesting thing is, at the same time, Round Island paid a total of just under $17 million in taxes to about 20 other countries, with more than 300 million people. The result of this was that Microsoft’s world-wide tax rate plunged to 26 percent in 2004, from 33 percent the year before. Almost half of the drop was due to “foreign earnings taxed at lower rates,” according to a Microsoft financial filing. And this is how Microsoft has radically reduced its corporate taxes in much of Europe and been able to shield billions of dollars from U.S. taxation.

But remember, this is only one example. Most of the other tech companies are doing the same thing. Google recently also set up an Irish operation that the firm credited in a SEC filing with reducing its tax rate.

Here’s how this is done in the software industry and any other industry with valuable intellectual property. A company takes a great, patented, American product and then develops a new generation. Then, of course, the old product disappears. Some, or all, of the cost and development work for the new product takes place in Ireland, or at least, so the company claims. The ownership of the new generation product and all income from licensing can then legally be shared between the U.S. parent company and the offshore corporation or transferred outright to the tax-haven. The deal, to pass IRS scrutiny, has to be made using the “arms-length principle.” Reality is that the IRS has no way of controlling all these transactions.

Unfortunately those of us working and paying tax in the U.S. can’t relocate our jobs and our income to Ireland or another tax haven. So we have to make up the income shortfall. In the U.S. we have a highly educated society with a very qualified workforce, partly supported by our tax payers. This helps us generate breakthrough products. But once a company has a successful product, they have every incentive to move the second generation of a successful product overseas, to Ireland and a few other corporate tax havens.

There is only one problem for U.S. companies with this strategy, and that is that if they repatriate this money to the U.S. they have to pay full corporate taxes. In fact, according to BusinessWeek, U.S. multinational corporations have built up profits of as much as $750 billion overseas, much of it in tax havens such as the Ireland, Bahamas, and Singapore to avoid the stiff 35% levy they’d face if they repatriated the funds back into the U.S.

But of course, Congress, which is basically paid for by our multinational corporations, generously provided for a one-time provision in the corporate tax code, so that they could repatriate profits earned before 2003, and held in foreign subsidiaries, at an effective 5.25% tax rate.

And so the game goes on.

In the end, multinational corporations live in a global world which allows them to pretty much send their money to corporate tax havens at will, and then repatriate this money almost tax free, with the help of the U.S. Congress.

The people left holding the bag are you and me.

Peter Rost, M.D., is a former VP of Pfizer. He became well known in 2004 when he emerged as the first drug company executive to speak out in favor of reimportation of drugs. He is the author of “The Whistleblower, Confessions of a Healthcare Hitman.”

© 2006 Peter Rost

Related features:

  • Corporate Tax Evasion via Offshore Subsidiaries: A Primer
  • Corporate Taxes Continue to Plummet
  • The Gap Between Statutory and Real Corporate Tax Rates
  • Corporate Tax Evasion in Montana

Filed Under: Corporate Accountability, Corporate Welfare / Corporate Tax Issues, Globalization

Stop Corporate Tax Evasion in Montana

September 22, 2006 by staff

Independent businesses unfairly handicapped by government favoritism

By Jim Elliot 
Published September 22, 2006

In 2002, 40 percent of the largest 500 companies doing businesses in Montana paid less than $500 in Montana corporate income taxes. Sixty-five of those companies paid less than $500 for four years running.

Legislation is now being introduced in the Montana Legislature to close corporate income tax loopholes so that we can collect the taxes from the world’s largest corporations that are rightfully due the citizens of Montana . The organizations that purport to represent the best interests of Montana businesses will claim that these measures will “create a bad business climate” and “send a message that Montana is anti-business.” That is a bogus argument.

Over the past 10 years of “pro-business” government, property taxes for Main Street Montana businesses have increased while those of multinational corporations have been dramatically lowered. In that same time period multinational corporations doing business in Montana have used bevies of tax lawyers and consultants to lower their taxes by every legal — and some not-so-legal — means.

How has this improved the “business climate” for Main Street Montana businesses?

Montana state and local governments — in their unflagging search to lure out of state businesses — not only ignore already established Montana concerns, but charge them extra for the privilege of facing greater competition.

Small businesses employ 85 percent of the Montana work force, but because of their small size or their type of business are generally not eligible for the tax breaks or the improvements made to roads and infrastructure that are often offered to big business. To add insult to injury, the small business owner has to join other Montana taxpayers in paying for these improvements and tax breaks.

Not only are small Montana retail businesses placed at a competitive disadvantage with national and international retailers because of their inability to use, for instance, the enormous leverage of bulk purchasing that is available to large retailers, but they also pay a higher percentage of their income in taxes because they cannot afford to hire multi-national tax consultants to minimize their income taxes.

But why should we care about this if the soul of business is competition, which hypothetically leads to lower prices?

Because small businesses are not just in the community. They are of the community. They are part of our social fabric because they take part in and have a personal interest in their community. The owners are our neighbors, their kids go to our schools and play in our parks. Small business takes an active role in community fund-raising and civic improvements because they care about the community, not because it’s good “public relations.” Their profits are spent locally. The profits of Wal-Mart and Home Depot go to distant locations.

So I don’t see any logical reason why we should consciously allow our local businesses to be placed at an even greater competitive disadvantage with the business giants. I don’t see any moral reason, either.

Every tax break or “incentive” that big business gets is paid for by Montana’s small businesses, just as you and I as citizens pay for them, either with increased taxes or poorer services. If big businesses have to be forced to the right thing and pay their fair share to operate in Montana, so be it. That is a civic duty that they cannot shirk.

One business owner put it to me as succinctly as can be done: “I don’t want special treatment. I want equal treatment.”

There is no reason why big business can’t operate at the same level of taxation as small businesses, and there is no reason why they shouldn’t. It’s time to turn our attention away from benefiting Wall Street and to pay attention to Main Street Montana. We can do this by making sure that every business operating in Montana pays their fair share of income taxes.

Jim Elliott is a Democratic state senator from Trout Creek. More of his commentaries ar available at his personal website, JimElliott.org.

For information on state-level tax evasion across the country, see Corporate Tax Avoidance in the States from Citizens for tax Justice. Contact us to learn more about this and other Montana corporate accountability initiatives.

See more features on Corporate Accountability or Independent Business issues

Filed Under: Corporate Accountability

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